If Labour wants to tackle inequality, it’s a land value tax, not the 50p rate that’s needed

by Callum Anderson

Anyone who read Oxfam’s report this week, which revealed that the 85 richest people in the world possess the same level of wealth as the poorest half of the global population, would have been shocked at the magnitude of global inequality. Things aren’t much better here in Britain. Just 189,000 families (roughly 0.6 per cent of the UK population) own two-thirds of the UK’s 60 million acres.

The what-who-how much elements of taxation are ones which have always been fiercely contested by Labour, Conservatives (oh, and Lib Dems) alike. However, as wages stagnate, the gap between rich and poor grow larger by the year, Labour should grab the initiative in this debate. However, instead of pursuing a somewhat one-dimensional tax policy in calling for the return of the 50p tax rate post-2015, the two Eds could, and must, be bolder in laying out a plan that not only yields the most revenue, but also begins to adequately address the inequality that stains our society. But one thing is clear – heavily taxing income is likely not an efficient way of doing this; instead, it is wealth that any future government must concentrate on.

As that great redistributionist, Winston Churchill, put it speaking in the House of Commons in 1909:

“Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains – and all the while the landlord sits still. Every one of those improvements is effected by the labour and cost of other people and the taxpayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced. He renders no service to the community, he contributes nothing to the general welfare, he contributes nothing to the process from which his own enrichment is derived … the unearned increment on the land is reaped by the land monopolist in exact proportion, not to the service, but to the disservice done.”

By moving toward a land value tax (LVT), or at least some form of it, a One Nation Labour Government could deliver a tax system which truly begins to orient itself toward wealth, and away from income. The benefits to this are obvious: lower taxes on income would encourage people to work, whilst more substantial taxes on wealth (i.e. land) would see high net worth individuals genuinely pay their fair share in tax. It is important to note, incidentally, that LVT would replace council tax, business rates, and, perhaps, even inheritance taxes.

And there are many practical benefits of an LVT. Here are just a few.

First, LVT could not be avoided (Unlike income tax and business taxes where tax avoidance experts are in great demand and the ‘shadow economy’ flourishes to evade taxes). Land is a visible, fixed, immovable asset. As such, it cannot be hidden or offshored, making avoidance of LVT difficult. Moreover, unlike Inheritance Tax or Capital Gains Tax, it does not depend upon death or disposal, making avoidance harder still. And because the supply of land is fixed, a Land Value Tax has no substitution effect, and therefore no deadweight cost or distortion, making it highly efficient.

Second, an LVT would encourage a shift of private investment from land speculation (which creates no extra land but only higher land prices) to productive enterprises. And, as Merryn Somerset Webb has correctly pointed out, as LVT is not collected on any improvements made to land or to buildings on land, it does not discourage productive activity. Instead, it encourages people to bring idle land into use, to improve land they own and to be more productive.

Third, an LVT would provide automatic compensation for those sites which are disadvantaged by a new development. For example: with a new railway line most sites (especially those near stations) benefit from big increases in land values but some sites (maybe housing close to the track and suffering from its noise and vibration) would lose some value. These sites would pay a lower Land Value Tax, providing automatic compensation without any complicated appeals system.

There could also be significant potential benefits for the UK’s cities. LVT would help avoid urban sprawl. As brown field sites would be developed within towns and cities it would be unnecessary to permit urban sprawl. Compact towns are also more efficient in their use of resources for transport and other services. Blanca Fernandez of the London School of Economics has rightly pointed out that many European cities need high levels of investment over the next decade, particularly in transport and housing. With austerity reigning supreme within European national governments, yet cities still requiring new local funding methods, a land value tax could raise vital new revenue for future investments.

Indeed, it is the potential to hand more revenue raising and spending control to local councils and cities that is, to me, one of the most attractive elements of LVT. By handing over the reigns of control for tax and spending to our councils (and, yes, Scotland, Wales and Northern Ireland), One Nation Labour could truly be the party of localism – giving local people a greater say in how tax revenues are spent within the neighbourhood – and subsequently transform the country.

So, whilst a LVT may be difficult to implement initially (some growing pains have been seen in Denmark, for example), there would be great potential for a One Nation Labour government to genuinely offer a fairer, and more equitable, tax system, which would finally see a proper shift in emphasis on revenue collection from income to wealth, incentivising work, and, finally, beginning to narrow the inequality gap that has stained our society for far too long.

Callum Anderson currently works at the Community Development Foundation

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19 Responses to “If Labour wants to tackle inequality, it’s a land value tax, not the 50p rate that’s needed”

Absolutely agree. We could use revenue from LVT to cut direct taxes. Perhaps we should introduce more wealth taxes and taxes on speculation in order to bear down on the super-rich without taking discouraging people’s hard work.

You should look to Ontario Canada and the creation of MPAC (Municipal Property Assessment Corporation) for an idea of how to implement an LVT. There are lessons to be learned both positive and negative.

LVT, though fairer, can have some serious negatives if not properly administered. Namely taxes on commercial properties can dramatically increase or decrease depending if the property value is assessed either by “best use” or by revenue. Also any dramatic change in valuation will generate lengthy and costly reviews.

And the impact on farmers would be? Not mentioned.
And the impact on house builders and their land banks will be? Not mentioned.
And the impact on golf course, zoos and amusement parks like Alton Towers which have lots of land? Not mentioned.

If you are going to propose a new tax on something you have never taxed before, you HAVE to consider the Law of Unintended Consequences.

So the article talks glibly about Land Taxes.. but not all land is equal. An acre in Central London is worth more than an acre in Norther Scotland

So… “ Just 189,000 families (roughly 0.6 per cent of the UK population) own two-thirds of the UK’s 60 million acres.” is meaningless.

So if that is the standard of the thinking behind this proposal , it’s just not thought out.

PS all house are built on land. Does this mean they will be subject to a Land Tax as well? That will go down well with “hard pressed working classes”.. As for Social Housing?

Prepare for electoral wipeout if this policy as enunciated is adopted.

LVT is based on rental value, not area. So farms and other green spaces are not worth the bother as they are a tiny fraction of the total.

As you say it’s all location, location, location.

Given a tax shift, and the elimination of huge deadweight losses(48% GDP, transfer of wealth, inefficiency and mis-allocation), the only groups to loose out are banks(£40bn per annum), landlords(£40bn per annum) and the 100,000 wealthiest households(£100bn per annum).

Housing affordability for a median household increases 4 fold in the short term, perhaps double that in the medium/long term.

75% of households would have no net LVT liabilities.

All households whose gross household income is 10% or more of their property wealth are better off under LVT.

“And the impact on golf course, zoos and amusement parks like Alton Towers which have lots of land? Not mentioned.”
Golf courses and amusement parks are usually out of town on low value sites, and they have to pay Business Rates under current rules anyway. For most sites, the LVT would be a £ for £ swap for Business Rates.

Most zoos are state-owned anyway, so they are effectively exempt (the government can’t pay tax to itself, can it?)

“So the article talks glibly about Land Taxes.. but not all land is equal.”
No, the article talks about Land VALUE Tax. Try reading it properly.

“An acre in Central London is worth more than an acre in Norther Scotland”
Correct, the rental value of the former is about 100,000 times more than a farm in Scotland, which is not worth taxing.

“PS all house are built on land. Does this mean they will be subject to a Land Value Tax as well?”
Yes, we are aware what houses are built on. And yes, it’s like old Domestic Rates. Half of all housing would fall below the household’s personal allowance threshold. So don’t do the crocodile tears for the poor routine.

“Prepare for electoral wipeout if this policy as enunciated is adopted.”
I think you’ll find that a lot of people support cheaper house prices and higher wages.http://poll.pollcode.com/82493989_result

I am sorry but if you think that your are going to replace tax on incomes 100% by a LVT, you really are producing a system where a multi millionaire lives in a semi and pays the smallest tax possible – thus savings millions in tax.

If you don’t mean that, then your farming analysis fall apart.

As I said before, it’s a recipe for electoral disaster.

And also a recipe for tax avoidance by the very rich on a grand scale.

eg.. I live in the Channel Islands or France or the Isle of Man but am paid in the UK. Pay no LVT and no income tax…

Or to put in terms you might understand: then people who already live in a semi won’t pay tax either, and who do you think will end up living in the nice big homes?

“If you don’t mean that, then your farming analysis fall apart.”

You clearly didn’t read or understand the farming page. I said that actually on closer inspection, farm land is not worth taxing. Did you miss that bit?

“And also a recipe for tax avoidance by the very rich on a grand scale.”

See above.

The whole point of the article (you might like to try and read and understand it) is that the ‘very rich’ own most land and live off land rents, directly or indirectly. So how will the ‘very rich’ continue to collect the rents while avoiding the tax?

So what you said is about as stupid as saying “If we start taxing Premier League footballers, then Premier League footballers will pay even less tax.”

Short answer, they can’t.

To cap it all, you display a complete lack of knowledge about the French tax system:
“eg.. I live in the Channel Islands or France or the Isle of Man but am paid in the UK. Pay no LVT and no income tax…”

You are not aware that France charges tax on a residence basis. So if you live there, you will pay French tax on your UK source income. And as I mentioned but you overlook, the proposed system would retain basic rate 20% income tax.

It really helps if you read and understand stuff before criticising it, eh?

“So I can becoime a farmer with a nice income from farming (using a farm manager) whilst I earn £millions from stock dealing and pay no tax?”

Like I said, a sensible half way house tax system replaces VAT and NIC and council tax with LVT and the other half of revenues is 20% flat income tax. So your farming income and your farming manager’s income in this case would be liable to 20% income tax, and you would lose your farm subsidies (negative LVT).

Whether you pay income tax on your share dealing depends on whether it is a trade or capital gains, that’s a tricky topic but always has been so of no relevance here.

“French residency? No I’ll be domiciled in the IOM and work in the City of Lonmdon.
No UK taxes due.”

You do not know anything about domicile and residence. Most countries – e.g. France – charge income tax on the basis of residence and have no concept of “domicile”.

So your London earnings are liable to 20% income tax and the French would then collect another 30% or 40% in French income tax.

And what you overlook is that the bulk of income of London bankers is land rents, they just call it “mortgage interest”. As land rents would go in tax, there would be little left for them to feast on in the first place. That was the whole point of the article, which you don’t appear to have read yet.

And London bankers like living in swanky houses, so they would continue to pay LVT. There is no saving to them in living in France because they just end up paying to live in a more expensive house over there and incurring huge commute costs.

Adopting the work London/live France combination gives you the worst of both worlds, as it happens – you pay the higher income tax over there without benefitting from low house prices here 🙂

BTW, I am a tax advisor for a living and I advise real life people on what to do on international stuff , you know nothing about it and are suggesting all sort of silly hypothetical corner cases.

MAAF, you are now clutching at straws, this is Killer Argument No. 1,379, I’ve heard it all before, it’s nonsense, betrays your lack of understanding about bank balance sheets and complete ignores what the banks have done to the people of this country over the last fifteen years.

James, there are only two parties who write LVT into their manifesto, that’s Young People’s Party and the Green Party in Scotland. The big difference is that YPP would get rid of loads of other taxes and the Greens would have it in addition.

What are the chances of LVT getting high on the agenda for the next election? I don’t normally vote but if any party is serious about this I’ll be first in the queue!
Love that Winston Churchill quote.